Research: Trends and Conclusions: Commercial Litigation 2013
Following the global financial crisis of 2008, the wave of related litigation that many predicted failed to develop. In the last two to three years, however, there has been a sharp increase in contentious work for practitioners, most prevalently in relation to financial, securities and insolvency litigation, according to our research.
Indeed, the spike in financial disputes has gained further momentum over the last year and shows little sign of waning, and as one UK-based nominee remarked, “I was very surprised not to see litigation slowing down in 2013, and anticipate being busy again over the next year, especially due to the number of cases affiliated with English law.”
Continuing economic uncertainty on a global scale and the European debt crisis have resulted in increased scrutiny and distrust of financial institutions. Subsequently there has been a renewed appetite from financial regulators such as the Serious Fraud Office (SFO) to hold rule-breakers in the sector to account, through stricter enforcement and a drive to bring more civil and criminal cases against financial institutions. There is a “real chill-wind blowing through the financial sector”, and as a result lawyers will continue to see an increase in professional negligence, fraud and product mis-selling litigation. Such is the influx of cases in this area that many firms have been proactive in seeking to expand their banking litigation practices.
Other “hot topics” include the international growth in disputes going to arbitration as many corporate parties look to prioritise cost savings. The popularity of this form of ADR can also be attributed to the nature of cross-border trade, with major commercial contracts increasingly including arbitration clauses “as a matter of course”. Contributing nominees have also commented on the trend for greater disclosure between governments in relation to international antitrust, leading to litigious work with often complex cross-border and governing law considerations.
ACTIVE SOURCES OF DISPUTES AND EMERGING TRENDS
The increased willingness of parties, “at every level from consumers to large corporations”, to initiate proceedings in the financial sector is a major reason for the rise in litigious activity over the past year. The financial community is “feeling the pressure” as fraud, mis-selling and insolvency work continue to be active areas for litigators, and investors “are more eager to litigate than in previous years, bringing cases where they feel that banks did not disclose the correct information about financial products and rates”. In the UK, lawyers have also pointed to the SFO’s “new dynamic” and renewed focus on prosecution of institutions as being a contributing factor to the buoyancy of financial litigation. As one contributor remarked, “regulators were previously criticised for bringing cases and failing, leading to a ‘safe and cautious’ approach. However, now the pendulum has swung the other way, with social and political pressure to bring cases”.
The prevalence of disputes in this area has served to “intensify the scepticism, particularly in the US and UK” about the conduct of banks and institutions, meaning that work for practitioners in this area is likely to be “full on” for some time to come. The amount of work that firms can accept in the sector is often compromised by their conflicts of interest; therefore another trend has been the desire of many parties to find firms that are conflict-free and not held back from acting in large-scale financial disputes. Several major cases in the past year have also raised other issues which could form the basis of future litigation: in CF Partners v Barclays & Tricorona, the misuse of confidential client information and the standards attaining to conflicts of interest were main points for consideration.
Although litigation relating to the LIBOR rate-rigging scandal has not “exploded” in the UK to the extent that some anticipated, the Court of Appeal’s consideration of the decision in Graiseley Properties Limited v Barclays Bank PLC later in 2013 is likely to have a “definitive effect” on the activity in this area over the next year. In the US, a number of firms are being instructed in relation to LIBOR-related class actions, which are based in breaches of competition law. Many lawyers across several states expect to be “continuously active” in this area over the next year, as amended class actions wait to be heard before federal district courts. Securities litigation has been a dominant area in the US in recent years and although work has “fallen off slightly” for US-based lawyers, the federal government has maintained a desire to bring further cases, as evidenced by the filing of two civil lawsuits worth $850 million against Bank of America in August 2013.
Companies are still going bust in the current economic climate, and subsequently insolvency litigation and enforcement has kept lawyers busy on a global scale. Regulators and creditors have become more aggressive in pursuing outstanding debts and less cautious in filing suits, despite an increased awareness of the costs involved. This is indicative of many corporate firms being more creative in their service provision and fee structures in order to accommodate parties’ changing attitude to litigation.
The energy sector has been experiencing a boom over the last two years; therefore it is not surprising that the number of disputes has increased correspondingly, as the alternative resource and shale gas industries gather momentum. This is particularly prevalent in US states that are rich in reserves, such as Texas and North Dakota, where energy companies have invested considerable capital in shale gas sites. Such corporations are regularly at loggerheads over ownership of rights in the reserves, and validity of lease terms and land value are also regular sources of disagreement. Inevitably, this has also led to a rise in activity for environment litigators, who are seeing a “flurry of defendant-based work, advising corporates facing claims in relation to nuisance and compliance”.
Intellectual property continues to be an active source for disputes, especially for lawyers practising in the Far East. Infringement work is very busy in China and Singapore, amidst the drive for tougher enforcement of international companies’ rights. In this regard, one contributor remarked that there has been a “definite regulatory move in Singapore to make the jurisdiction an appealing seat” for IP disputes; the government has moved to establish IP courts and appoint judges who are specialised in the area. Again, clients are concerned about cost control in such disputes, and contributing lawyers have spoken of the larger corporations in Singapore, Hong Kong and China “being more amenable to out of court settlements and ADR” than they have been in the past.
Cost considerations are also the focus of governments, law firms and clients alike throughout Europe. In England and Wales the Jackson cost reforms were introduced in April 2013; the changes are likely to have a “distinct effect” on the way lawyers conduct litigation and how case costs are funded and recovered. The reforms cover several areas including cost management, extensions of time requests, settlement offers, and also introduce measures to enable more efficient and cost-sensitive disclosure, the current procedure being particularly expensive for clients. Litigators are “in a state of flux” as they wait to see whether the changes will “ensure a more diligent approach to case management”, which will be dictated by the courts’ interpretation of the rules and the force with which they are implemented.
As cases across Europe increase in volume and complexity, governments and lawyers face a challenge to ensure a balance between cost effectiveness and efficient case management. Achieving this will be difficult considering that several leading European banks have tripled their provision for litigation and regulatory expenses in light of numerous claims in the banking sector. Lawyers are also expected to be busy advising in relation to the expenses and logistics of cross-border litigation, due to the large number of parties affected by financial non-compliance and fraud as well as greater cooperation between governments in areas such as tax avoidance and antitrust investigations. As one nominee commented, “we are seeing that as commerce becomes more internationalised, so does litigation, and lawyers are increasingly required to consider key issues in a multi-jurisdictional context”.
THE INCREASE IN ARBITRATION AND ITS INTERACTION WITH LITIGATION
The number of clients actively turning towards arbitration has “risen steadily” over the past year. While our research does not indicate a widespread trend for clients choosing arbitration over litigation, corporate parties are “more incentivised” by costs considerations. A common view among dispute resolution lawyers we spoke to was that the increasing popularity of arbitration can also be attributed to a “distinct rise” in cross-border trade, resulting in more arbitration clauses being agreed at the formation of a multi-jurisdictional contract, which determine the form of dispute resolution to be used.
The internationalisation of arbitration is further evidenced by the method’s burgeoning status in Singapore, where the government and International Arbitration Centre (SIAC) have been “very proactive” in promoting greater use of the technique in commercial disputes, as well as encouraging multinationals to use the SIAC as the designated arbitration seat in such cases. As a result, several Singapore-based lawyers have noted an increase in SIAC-based clauses, which is expected to result in continued activity for arbitration specialists in the jurisdiction. Many global firms are looking to establish practices in the region, with one lawyer describing their arbitration work there as “thriving”, both in terms of providing counsel and acting as an arbitrator. Lawyers are also seeing the method’s rising popularity in South America; in 2012 Colombia introduced a new arbitration statute, which governs the enforcement of international arbitration awards in the region, as well as establishing different rules for domestic and international commercial arbitration proceedings in Colombia. One lawyer in the jurisdiction observed that the legislation has “opened the door for more complex international arbitration in the area”, giving Colombia-based firms the opportunity to grow their dispute resolution practices.
Commercial litigation and arbitration have both experienced continuous growth over the past year, and several lawyers have commented on the purported benefits of arbitration versus litigation and the influence such factors have in their decision-making. Some concerns have been expressed that arbitration is becoming “too expensive”, in terms of room hire and high fees for arbitrators, considering that a main incentive for clients to arbitrate is that the process is cheaper than litigation. A common trend was that although “some clients have been surprised by the unexpected costs of arbitration”, the method of ADR is “still generally cheaper” due to its expeditious nature; for example, the LCIA advocates that an arbitration must begin no later than 18 months after a commercial dispute between the parties has arisen, which compares favourably with many commercial cases where multinationals are involved.
On the global stage, international companies are “more concerned than ever” about brand reputation, meaning that the provision of confidentiality in most jurisdictions makes arbitration an attractive alternative to litigation. Although more parties are voluntarily turning to arbitration, the steady rise of mandatory arbitration clauses in multi-jurisdictional contracts is certainly a contributing factor to the increased use of the forum. Most contributors seem to agree that, rather than arbitration’s rising use being at the expense of litigation or vice versa, both processes offer distinct benefits. The enforceability of arbitration awards offers a “huge advantage” to parties when complex cross-border issues are involved. Equally, several lawyers have pointed out that “state courts are often the best way to recover funds on an international scale, particularly where the option of summary judgment is available”.
Our research shows that the numbers of litigators and arbitrators selected for inclusion have increased in the past year, and indications are that this is likely to continue in the immediate future. The number of litigators has, however, increased more dramatically as demonstrated by chart one, reflecting the “intense” nature of the current litigation market, particularly in relation to banking and insolvency disputes. The progressive uptick in listings over the last two years is in marked contrast to the period from 2010 to 2011, when the market was “clearly struggling” and commercial entities displayed a “very cautious attitude” towards entering into lengthy and expensive litigation. By comparison, while mediation is embedded in the domestic law of many jurisdictions, it “has never been embraced in the same way as arbitration” as a form of ADR. As the method offers distinct cost benefits for parties and the possibility of repairing damaged commercial relationships, many lawyers feel that “more could be done” to promote mediation at international level.
THE LEGAL MARKET
It is clear that commercial litigation has experienced a very high level of activity on a global scale which “looks certain” to continue into the next year. Many firms are consequently capitalising on the high client demand by recruiting more lawyers and “significantly boosting” their litigation practices in anticipation of a sustained appetite among commercial parties and state authorities for litigious disputes. In the UK, leading litigation firms have been looking to “massively grow” their disputes practices in the knowledge that lengthy financial fraud cases will be an “enduring area of focus for the next two years at least”. Similarly, the rise of arbitration and IP litigation in Singapore has encouraged firms to take on additional dispute resolution partners; in France nominees have also described a high volume of product liability and bankruptcy cases, which have led firms to expand their litigation departments. This worldwide trend is reflected in our research, with a huge increase in the number of litigator listings from 557 in 2012 to 681 in this year’s edition. The turnaround of the litigation market in the last two years is drawn further into focus upon looking back to 2011, when our corresponding edition featured 481 lawyers.
The litigation “boom” of the last two years has been beneficial for boutique and full-service firms alike, as both models continue to hold a strong appeal for high-profile clients. Many major financial and corporate clients have retained the service of internationally recognised firms which have large litigation departments, and with whom they have a long-standing relationship. Equally, lawyers in various jurisdictions have commented on the “growing desire for specialist firms” in litigious matters, one lawyer at a major firm in Chile observing that a “surprisingly large” number of their rivals in the field are boutique firms or sole practitioners. In some cases the aforementioned trend for cost maintenance has meant that “several clients are moving away from large general service firms, with a preference for boutiques that offer lower fee structures and are not compromised by conflicts of interest”.
Lawyers have also noted the increased competition between firms as they look to take advantage of the rejuvenated global disputes market, and the returning activity in the sector has led to a number of firms giving “renewed focus” to their litigation practice as they look to attract “renowned specialists” who will draw in clients. The results of our research epitomise this trend; in this edition we recognise lawyers from 396 firms that are “well respected” for their litigation work, compared with 318 firms in 2012. Given that last year also marked an improvement in the discipline, it is clear to see that the increase in cases has instilled a greater sense of optimism at leading firms that their services will be in demand for the foreseeable future.
Commercial litigation has become increasingly international in nature in recent years, and as a result major firms have been looking to “widen their reach” in a number of jurisdictions. This is exemplified by our recognition of eight more jurisdictions than in the 2012 edition, and the rise also shows that litigators in those newly represented countries have developed the ability to specialise a number of practice areas, to an extent that they have earned international recognition. North America and England continue to be the most strongly represented regions in this edition, as has been the case for the past three years. Reasons for this include the continued “frenzy” of financial fraud and insolvency litigation in London, as well as the increased propensity for class actions and energy suits in the US. In terms of emerging jurisdictions, Singapore stands out as a “region to look out for” as leading lawyers begin to reap the benefits increased IP litigation as well as SIAC’s drive to build the jurisdiction into a hub for arbitration work. Eleven Singapore practitioners receive nominations in this year’s edition, a distinct increase on seven in each of the past two years, and lawyers are “eminently confident” that further litigators and arbitrators from the region will achieve recognition in the next year alone.
Looking to the future, litigators are confident that the market will “continue to thrive” for the next year and beyond. It is clear that clients’ increasing awareness of case costs has not undermined their appetite for litigation, in light of the considerable commercial assets at stake, the “first-rate” value-added services provided by leading lawyers and the inventive fee structures being utilised by firms. High-profile banking litigation is likely to be a “reliable source” of work for litigators over the coming year, and the progressive globalisation of trade and commerce will be central to ensuring further work litigation and arbitration work with cross-border elements.